24. September 2021Just Transition at work – the example of the lignite phase-out in Western Macedonia

To meet the goals of the Paris Agreement, the Greek government decided to withdraw all lignite plants by 2028. For Western Macedonia, the governmental decision has immense socio-economic impacts as the region is dominated by lignite mining activities and infrastructure.

A new article by Ziouzios, Karlopoulos, Fragkos & Vrontisi reflects on the current socio-economic and socio-political situation in Western Macedonia and discusses the policies and investments implemented to ensure a just transition for households and businesses of the region.

Center of Greece’s energy system

Lignite has long dominated the electricity system of Greece. It provides cheap and reliable energy, given the abundant and low-cost domestic resources. In the face of creating a net-zero emission economy by 2050, the Greek Government proposed a lignite phase-out. As one out of different pathways to reach long-term neutrality, all lignite plants will be shut down by 2028.  Most plants, accounting for more than 80% of current capacity, will be withdrawn by 2023.

The region of Western Macedonia has been hosting 80% of the Greek lignite industry for about 70 years, creating conditions of the high dependence of the local economy on the lignite value chain. Thus, Western Macedonia is called upon not only to adjust its production model to the new requirements but also to proceed immediately to a comprehensive productive restructuring towards a full phase-out of lignite activities.

The long-term dependence on lignite has created conditions of technological and economic lock-in at the regional level. 34% of the Gross Value Added in Western Macedonia comes from lignite activities and more than 10% of local employment is directly or indirectly related to lignite production. But already today many jobs in lignite mining face a state of high uncertainty and alongside the lignite value chain, many satellite companies record significant job losses.

Making a Just Transition Work

In December 2019, an inter-ministerial committee was established by the Greek government to monitor the Just Development Transition to the post-lignite era of Western Macedonia. The committee needs to approve a Just Development Transition Plan (JDTP) and supervise its implementation. The plan handles the issues related to the governmental lignite phase-out policy. The main priority is to ensure the fair transition in lignite-mining areas. This is based on three axes: the protection of labour, the alleviation of the socio-economic impacts in lignite areas and the enhanced energy supply security of the country.

Based on this, the Greek Government announced a Master Plan for a just transition. For Western Macedonia the five key development pillars are:

• Clean Energy development (e.g. PV plants of more than 2.5 GW in abandoned lignite mines, battery production, hydrogen production facility)
• Industry manufacturing activities and trade
• Smart agricultural production
• Sustainable tourism
• Research, innovation, technology and (re-)education

The total financing required for these projects accumulates to 5 billion euros, with 40% coming from commercial loans, 20% from private investment, 10% from grants (e.g., from the EU Just Transition Fund) and 30% from European sources and financial instruments as low-interest loans. With the implementation of the master plan, it is estimated that 6000 new jobs will be created by 2028, which can cover the lost jobs and the short-term unemployed of Western Macedonia. This will also result in an inflow of a new high-skilled workforce, e.g., specialized scientists and executives, combined with the absorption of the affected human resources in the affected areas. Most of the jobs will be created for the restoration of the mine lands and the development of clean energy projects. This phase will last until 2026, absorbing most of the job losses of the technical staff working in lignite activities. Nonetheless, given the current skill set of the region, around half of the workforce and the short-term local unemployed may need reskilling to be absorbed by new economic activities.

Generally, to ensure that the lignite phase-out will not negatively affect the regional economy, Western Macedonia can build on its strengths and competitive advantages, including the high concentration of specialized human resources, its industrial culture, energy infrastructure, an agriculture sector with high potential, existing academic and research structures, and a strategic geographic position in South-Eastern Europe.

Local views

On the local level, various studies were conducted to gather the view of regional stakeholders (regional authorities, municipalities, academia and business community, chambers and trade unions) towards the lignite phase-out. So far, there is a widespread scepticism towards the accelerated and time-pressing process of delignification even though the necessity of lignite phase-out is more and more accepted (e.g. due to the increase of ETS prices)based on the insurance that the local population will not face hardship from the transition process.

Most stakeholders agree that

• there is no alternative economic activity that could unequivocally replace all jobs and income. Thus the new production must be based on multiple and complementary activities, generate new jobs, economic growth and income in the region,
• there is a need to create labour-intensive local activities which generate jobs to compensate the job-loss due to the lignite phase-out,
• some of the new activities are knowledge-intensive (like hydrogen production). Investing in research and innovation as well as building synergies between the local community and the University of W. Macedonia is an important factor of success,
• there must be a strategic balance between external direct investment and the development of an intra-regional production capacity. This shall avoid future high dependencies on a single economic activity,
• reskilling the local workforce is necessary to enable efficient transition,
• the rehabilitation of depleted lignite mines, spatial planning, the promotion of licensing simplification, the creation of local energy communities and the launch of big infrastructure projects are recorded as important prerequisites.

Here it is important to mention that energy transition is not just about choosing the best solutions to decarbonise the energy system. It also heavily depends on human habits, their behaviour and societal transformations. For these processes the transparency of political commitment and building trust in the local community is crucial.

Open question and concluding comments

To meet environmental targets, the Greek Government has decided on a lignite phase-out to be finished by 2028. For Western Macedonia, the major lignite area, this means a fundamental transition which needs to be organized in a clear and effective way – given this complex, multi-level and multi-annual process. The timeline to shut down existing lignite plants within the next 2 to 3 years is ambitious and demanding. Investments in other activities must be made quickly so that their results can be visible by 2023 and absorb job and income losses from lignite activities. The challenge is great, as mentioned in the Master Plan, given that the necessary procedures and mechanisms are still under discussion. This is happening while all actors confirm that lignite activities will phase-out within the next few years.

The article by Ziouzios, Karlopoulos, Fragkos & Vrontisi shows that educational and training programs, along with early retirement schemes, which will support the income of the ex-miners, should be designed and tailored to the local needs of Western Macedonia. The regional development process should be based on clean energy investment, industrial development, smart agriculture and sustainable tourism, while exploiting the technical skill base of the region’s workforce, acquired through the lignite industry. The development of a diverse economic landscape is important to avoid future dependencies on just one economic activity.

One open question is whether the district heating of the large urban centres in the region, which is dependent on the lignite plants, will still be in use. One plan here is the use of natural gas or biomass instead of the lignite. Although natural gas is a cleaner fuel than lignite, it is still a fossil fuel, which emits GHGs. Figuring this out, Western Macedonia can have a key role in the transition of Greece’s energy system with investment in low-carbon technologies, including solar PV, electricity storage, green hydrogen etc. The transition away from the lignite-based paradigm can be reinforced with efforts to reduce energy poverty, implement energy efficiency projects and develop energy communities and other collective actions for engaging the local population.

Authors

Dimitris Ziouzios

External partner of Regional Development Fund of Western Macedonia

Evangelos Karlopoulos

Centre for Research and Technology Hellas (CERTH)

Chemical Process & Energy Resources Institute (CPERI)

Panagiotis Fragkos

Senior Researcher

E3Modelling S.A.

Zoi Vrontisi

Senior Researcher

E3Modelling S.A.